Tuesday, April 18, 2006

DSB shakes up payments market....?

At the end of last year the DSB consortium (specialising in loans to consumers) received a bank license from the Dutch supervisor. And today it's penetration strategy for the banking sector was all over the news, including the NOS National news.

DSB president Scheringa gave an interview to the Financieele Dagblad to explain that it's strategy as of this summer would be to offer payment accounts to the public with the following features:- interest rate of 3 % on the funds on the account,- no fees for payment instruments,- expansion of the bank branch network to ensure one branch within 15 kilometer of each citizen.

The main Dutch banks all react similar. This is not a sustainable business case for payments in itself; it is a penetration strategy funded by the extra income that will most likely be generated from additonal loans or mortgages provided to the new customers. So the customers will in the end somehow pay the price.

Of course this can be viewed as the standard reaction of any incumbents to competition. But even for the regular observer it is quite difficult to imagine how this business proposition (of which details are unknown) will be sustainable in itself.

The academic approach would be to combine the 3% interest with transaction fees that are based on cost price of the instrument. In doing so each customers pays for the price/cost of its own payments. Those who do a lot of (cheap) internet banking have some money left after one year. And those who use expensive payment instruments need to pay extra. Which makes for transparent business case as well as a transparent user experience (where users can decide themselves if they care about paying efficiently).

My take is that in the end (in 30 years time) we will have arrived at the academic ideal in all EU-countries. In the meantime we will see all kinds of models: package models, invisible pricing, the DSB-model and what have you. But as we slowly get used to paying for inefficient ways of doing business, we will eventually end up at the academic ideal.